Solving the Orszag-Citigroup Problem

In case you missed the news last week, former Office of Management and Budget Director Peter Orszag has taken a multi-million dollar gig at Citigroup. The move has been condemned by some critics of the well-trodden path between Washington and Wall Street, including The Atlantic's own James Fallows. To be sure, Orszag's decision is regrettable from a public policy standpoint: Citi was one of the biggest bailout recipients, and Orszag may have had input on aspects of its rescue during his tenure at the White House. But how do you avoid this problem?

On some level, it's hard to blame Orszag. After all, as OMB head he was making a fraction of what he'll make at Citi, which will certainly provide him a more lavish lifestyle if that's what he's after. Of course, it would have been nice to see him take a job at a firm that wasn't an embattled recipient of a big government rescue during his time working for the President. And since the revolving door remains active, public condemnation alone obviously isn't slowing it much.

Economist Karl Smith at Modeled Behavior has a suggestion. He says we need to pay government officials more competitively:

I do hope that economically oriented folks aren't suggesting that we use moral suasion to control government corruption. People respond to incentives. If you don't want them to sell you out then you have to pay them more.

Indeed, if Orszag had a $7 million per year salary as OMB head, he might still be there. Or he may have still left. It's possible that money had little to do with it. He may have found the job too stressful and the work monotonous. Or maybe he couldn't stand his boss. For these or other reasons, even a multi-million dollar government salary might not have kept him around.

The big complaint about Orszag's move isn't that he sought greener pastures, but that the particular pasture where he ended up stunk of conflict-of-interest. So better pay isn't the clearest solution to this problem -- a better one would be simply restrict government workers from walking that path.

Such prohibitions could be written into the employment contracts of these workers. This would be similar to how some firms forbid their employees from taking jobs with their clients for some period of time after they leave the firm. If Orszag had such a restraint, he might not have been about to work at Citi, but instead could have settled for a job at a hedge fund or consulting firm. He still could have made more money, but avoided the unfortunate conflict.

The other problem with paying government employees more competitively is simply the notion of dozens of high-level government officials making multi-million dollar salaries. This certainly wouldn't help our fiscal spending woes. And do we really want to lure money-hungry individuals who might not care about public service away from the private sector to work for the government?

We sort of expect those who are in the business of public service to be the type of individuals who care about more than just their paycheck. Incentive matters, but it doesn't correspond to just money -- it's based on a broader measure of utility. This is a complex equation that should take a number of variables into account, and every individual's utility function is different. In particular, the utility a job provides to someone best cut out for public service should not depend entirely on how much money it provides: the impact in the world they feel they are making should also matter. If Orszag was only out for money, then he was in the wrong sector to begin with and we should be thankful that he left.